How much revenue can the Quebec government generate by increasing tax rates on high earners?

The newly-elected Parti québécois government wants to (among other things) eliminate the 'health tax' introduced in the 2010 budget and make up the shortfall by introducing two new tax brackets at the top end of the income distribution:

• 28% for taxable incomes above $130,000
• 31% for taxable incomes above $250,000

The current top Quebec rate is 24%, and it applies to taxable incomes above $78,000. The top federal rate of 29% kicks in at around $130,000, so the (net of the 16.5% Quebec abatement) federal + provincial top rates will be

• for taxable incomes above $130,000: 29*(1 - 0.165) + 28 = 52.215% (up from 48.215%).
• for taxable incomes above $250,000: 29*(1 - 0.165) + 31 = 55.215% (up from 48.215%).

If you assume that there are no behavioural responses to the new tax rates - that is, if you perform a static analysis - new revenues work out to around $835m. But if you incorporate the sort of behavioural responses based on available data - 'dynamic scoring' - you find that revenues will more likely to be half that, and probably less.

I'm going to work through the math below the fold.

The data for the base case are provided by U of Toronto economics PhD student Andrew Bird (@apmbird on twitter - go follow him), who took the time to retrieve the relevant numbers for 2012 from the Social Policy Simulation Database: 

• Taxable incomes above $130,000: 111,921 files, with taxable income of $14.899b above $130,000. To get the total taxable income for this group, you have to add the taxable income below the threshold: ($130,000 times 111,921 files) + $14.899b = $29.449b. The Ministère des finances reports that the taxable income for those whose total incomes of $150,000 and more in 2009 was $25.5b (93,957 files), so those numbers seem plausible.
• Taxable incomes above $250,000: 31,142 files, with taxable income of $7.991b above $250,000. Adding the taxable income below the $250,000 threshold yields  ($250,000 times 31,142 files) + $7.991b = $15.777b.

From this, we infer that there are 111,921 - 31,142 = 80,779 files reporting taxable incomes between $130,000 and $250,000, and that the taxable income of this group is $29.449b - $15.777b = $13.672b.

In the base case - using the old rates - the revenues generated are the old 24% rate applied on the tax base those whose taxable incomes are above $130,000: 0.24 * $14.899b = $3.6b

As mentioned earlier, if you assume that there are no behavioural responses, the new tax rates will generate about $835m in new revenues (this is worked out below), presumably the sort of number the PQ was looking for.

But we know - Kevin Milligan has been quite insistent on the point here and most recently here - that there will be behavioural responses on the part of high earners to changes in their tax rates. A good a way as any to introduce these effects is the model used in this Department of Finance survey:

Δ log[tax base] = ε  Δ log[1 - tax rate ] + controls

where ε is the elasticity of taxable income (ETI). There are US studies that obtain estimates of 0.2, but Canadian data favour an estimate of 0.4 and up to 0.7 for high earners.

Because there are two new brackets, there are two cases to consider:

• Taxable incomes above $250 000: Δ log[1 - tax rate ] = log[1 - 0.55215] - log(1 - 0.48215] = -0.1452.
• Taxable incomes between $130 000 and $250 000:  Δ log[1 - tax rate ] = log[1 - 0.52215] - log(1 - 0.48215] = -0.0804.

Let's consider two cases in detail: ε = 0.2 and ε = 0.4. I'll add the case where ε = 0.7 later; the next table would be too big to fit on the screen if I treated all three.

 

		ε = 0.2			ε = 0.4
	log[old base]	Δ log[tax base]	log[new base]	New base	Δ log[tax base]	log[new base]	New base
$130,000 - $250,000	log[13.672b] = 23.3386	0.2 x (-0.0804) = -0.0161	23.3386 - .0161 = 23.3225	$13.453b	0.4 x (-0.0804) = -0.0322	23.3386 - .0322 = 23.3064	$13.239b
over $250,000	log[15.777] = 23.4818	0.2 x (-0.1452) = -0.0290	23.4818 - .0290  = 23.4528	$15.326b	0.4 x (-0.1452) = -0.0581	23.4818- .0581  = 23.4237	$14.886b

 

There are three cases:

• Those whose taxable incomes are between $130,000 and $250,000 and who will face a new provincial top rate of $28% on income over $130,000.
• Those whose taxable incomes are greater than $250,000 and who will face a new provincial top rate of 28% on income between $130,000 and $250,000.
• Those whose taxable incomes are greater than $250,000 and who will face a new provincial top rate of 31% on income above $250,000

 

Here is the first case. The taxable income above the threshold is obtained by taking the tax base and subtracting ($130,000 threshold times number of files). Revenues are the new tax rate applied on the taxable income above the threshold.

 

Revenue from 28% tax bracket:
Taxable incomes between $130,000 and $250,000

	Base case	Static analysis: ε = 0	Dynamic scoring: ε = 0.2	Dynamic scoring: ε = 0.4	Dynamic scoring: ε = 0.7
Tax base	$13.672b	$13.672b	$13.453b	$13.239b	$12.923b
Taxable income above $130,000	$13.672b - ($130,000 x 80,779) = $3.171b	$13.672b - ($130,000 x 80,779) = $3.171b	$13.453b - ($130,000 x 80,779) = $2.952b	$13.239b - ($130,000 x 80,779) = $2.738b	$12.923b - ($130,000 x 80,779) = $2.422b
Revenue	0.24 x $3.171b = $0.761b	0.28 x $3.171b = $0.888b	0.28 x $2.952b = $0.827b	0.28 x $2.738b = $0.767b	0.28 x $2.422b = $0.678b

 

Static analysis predicts increased revenues of over $120m, but if you apply the proferred estimate for the tax base elasticity, these gains disappear entirely. If larger values of ε are use, the net change in revenues will be negative: the reduction in the tax base will more than offset the increase in the tax rate.

I'm going to assume that no-one whose taxable income is currently above $250,000 will be able to reduce their taxable incomes below the $250,000 threshold. This is made for simplicity (I'd have to play some games with the Pareto distribution to do it properly, and I'm trying to fit things on the back of an envelope), and it will overstate the revenue gain.

So here's what you get if you assume that the number of files in this category doesn't change:

 

Revenue from 28% tax bracket:
Taxable incomes above $250 000

	Base case	Static analysis: ε = 0	Dynamic scoring: ε = 0.2	Dynamic scoring: ε = 0.4	Dynamic scoring: ε = 0.7
Taxable income above $130,000 and below $250,000	($250,000 - 130,000) x 31,142 = $3.737b	($250,000 - 130,000) x 31,142 = $3.737b	($250,000 - 130,000) x 31,142 = $3.737b	($250,000 - 130,000) x 31,142 = $3.737b	($250,000 - 130,000) x 31,142 = $3.737b
Revenue	0.24 x $3.737b = $0.897b	0.28 x $3.737b = $1.046b	0.28 x $3.737b = $1.046b	0.28 x $3.737b = $1.046b	0.28 x $3.737b = $1.046b

 

Since there are by assumption no behavioural responses to consider here, all cases yield an extra $150m. Again, this is being generous.

And finally the case of those whose taxable incomes are above $250,000:

 

Revenue from 31% tax bracket:
Taxable incomes above $250,000

	Base case	Static analysis: ε = 0	Dynamic scoring: ε = 0.2	Dynamic scoring: ε = 0.4	Dynamic scoring: ε = 0.7
Tax base	$15.777b	$15.777b	$15.326b	$14.886b	$14.523b
Taxable income above $250,000	$15.777b - ($250,000 x 31,142) = $7.991b	$15.777b - ($250 000 x 31,142) = $7.991b	$15.326b - ($250 000 x 31 142) = $7.541b	$14.886b - ($250 000 x 31 142) = $7.101b	$14.423b - ($250 000 x 31 142) = $6.738b
Revenue	0.24 x $7.991b = $1.918b	0.31 x $7.991b = $2.477b	0.31 x $7.541b = $2.338b	0.31 x $7.101b = $2.201b	0.31 x $6.738b = $2.089b

 

Static analysis yields a revenue gain of $560m, but a medium-case dynamic scoring exercise produces half that.

Putting the three together:

 

Revenue: Change from base case

	Static analysis: ε = 0	Dynamic scoring: ε = 0.2	Dynamic scoring: ε = 0.4	Dynamic scoring: ε = 0.7
28% bracket: Taxable incomes between $130 000 and $250 000	$0.127b	$0.066b	$0.006b	-$0.083b
28% bracket: Taxable incomes above $250 000	$0.149b	$0.149b	$0.149b	$0.149b
31% bracket: Taxable incomes above $250 000	$0.559b	$0.420b	$0.283b	$0.171b
Total	$0.835b	$0.635b	$0.438b	$0.237b

 

The medium-case dynamic scoring model predicts extra revenues of $438m, just over half what static analysis says.

If the government wanted to make up that $400m revenue gap by increasing taxes even further at the top end, the prospects for successfully doing so are not good. Increasing the top rate for taxable incomes over $250,000 to 33% (top federal-provincial combined rate of 57.215%) will raise an extra $50m, and revenues start declining for top provincial rates higher than 33%.

This is getting to be a familiar story, and one that should be better-known. It's much harder than you might think to extract significantly more income tax revenues from the top end of the income distribution.

 

Comments

[Determinant]

I'm a lefty, and I'm OK if this is the top limit of the "income extraction" capability of tax rates.

What is more important to me is the mess of extra levies, claw-backs and other revenue gimmicks that play merry hell with marginal tax rates at for low and middle income earners. It really lessens the progressivity of the tax system. Parliament/provincial legislatures should look at their taxes and transfers holistically to make sure the progressive nature of the income tax system is maintained.

[Glen creer]

Great statistics to start your day. What does it not say? Earners over 150k, 250 k, are very mobile. Thier income is likely not all generated in quebec. The 150k and the 250k are net proceeds from enterprises generating hundreds of millions in other types of tax revenue. In Quebec and elsewhere. Payroll, property, vat etc. Income tax is a penalty on effort, a penalty for creating jobs and taking risk. This tax will Encouage those people to move to jurisdictions that appreciate those who make the system work, and likely cater to those looking for more free stuff.

[marcel]

It's much harder than you might think to extract significantly more income tax revenues from the top end of the income distribution.

Marginal tax rates were considerably higher in the U.S. 1 & 2 generations ago (30 & 50 years, to be precise). They were still at WW2 levels when JFK came became president.

- Was tax evasion substantial then? If not, why not? Different cultural norms?

- Revenue fell with the Reagan cuts in marginal rates, 20 years later. Did they not fall in the early 1960s (or was growth so robust then as to overcome any fall that would have otherwise occurred)?

- If revenue falls with reductions in marginal rates but does not rise with increases, why the asymmetry?

- Is tax evasion substantial in parts of northern Europe with (by current standards) high marginal rates? If not, is it just their cultural norms?

- We now look back on the period of high rates (1950s and 1960s before Vietnam) as an economic golden era. Was it only because the eastern hemisphere was still recovering from WW2, and the US's economic superiority was unchallenged (except, by Nikita Kruschev, and we know how that turned out)? Was it in any way due to lower levels of income inequality?

Like Determinant, I style myself as a lefty, but I try keep my head out of the sand, and the sand out of my eyes. I don't specialize in pub-fin, so these questions are not rhetorical; I'd like to know the answers.

[rsj]

This type of analysis is hard to square with historical experience. When Kennedy lowered top rates from 90% to 70%, tax revenues fell. Revenues declined every time rates were decreased and revenues increased every time rates went up.

And we have another historical model, in that top earners are earning historically anomalous incomes (excessively high) yet with no excessively high levels of aggregate productivity to match.

So either Canadians are fundamentally different, or we have entered a new era, or your model is mispecified. I would tend towards the latter, as you are using a linearization which is only slightly better than a static analysis, are not taking into account any backwards bending labor supply curves, and are just assuming that incomes are statically distributed among high and low earners -- i.e. that any reduced income on the part of high earners just vanishes and does not show up as increased income on the part of other earners.

[rsj]

..but let me back-pedal and say that if this is a purely *local* analysis, then yes, people can move from one province to another. It is much harder for capital to move, but that doesn't matter because investors can own equity shares in firms far away from the province in which the physical plants are located. But it would be nice to separate out a general discussion of geographic tax arbitrage from a discussion of reducing labor supply in response to an increase in taxation. One is plausible but the other is not.

[Determinant]

On moving from one province to another for tax reasons: I'm pretty sure that motivation is far down the list of almost all interprovincial moves. Canada doesn't have any low-tax retiree "sunspots".

Second, Quebeckers are by far the least likely to move interprovincially because of language issues. High-income French-speakers have to give up French in the workplace and most of their social lives in French when they move to an English-speaking province (the only exception being the City of Ottawa). That's why Quebeckers are homebodies, statistically.

The PQ may be counting on that fact in their revenue projections. They don't care about the West Island.

[tyronen]

The key phrase in your analysis is:

"The ... model predicts extra revenues."

That is, raising taxes on high-income individuals raises money for the government. Perhaps not as much as they hoped, but revenue all the same. The supply siders are wrong.

The PQ should proceed with this tax plan.

[rsj]

Tyronen,

If the government is counting on raising a certain amount of money, but raises less, than that has relevance for other expenditures when it tries to hit a certain deficit target. So being able to estimate how much it raises is important.

At the same time, I am very skeptical of these types of partial equilibrium analyses. Why do higher incomes appear to be more elastic to rates? Because they have access to certain loopholes. So is the elasticity a measure of loopholes or is it a measure of the overall income response to taxation? Particularly when there is a glaring loophole for deferral of income by choosing to take delivery of capital gains versus wage income (e.g. receiving compensation in the form of stock or retirement contributions).

But in that case, if more households elect to shift their incomes in this way, then you cannot use a partial equilibrium analysis and just assume that the wage income vanishes. It will show up elsewhere and cause revenue to increase via other sources. That is why you have real problems when, on a micro analysis, reported income for one particular cohort declines, but aggregate tax receipts keep going up. If you care about aggregate tax receipts, then you cannot plug the declines in reported income on a per-cohort basis into your algorithm without taking into account the cross-cohort income flows that occur in response to changes in tax policy.

As a specific example, in my last start up, we were bought in a stock swap, partially because the VCs did not want to recognize taxable income, but preferred to take delivery of long term capital gains.

But this did not mean that the income disappeared from the tax roles. By effectively deferring payment, it allowed the purchasing company to invest more and those additional expenditures resulted in increased tax revenues. The loss of taxable income from the upper cohorts didn't just disappear, but resulted in increased taxable income by other cohorts, and an increase in corporate taxes paid.

If marginal tax rates were raised, then by this method you are going to undercount the revenue raised, first because some revenue was deferred but not lost, and second because the hidden revenue will be taxed via other means. So it is not true that a $1 reduction in reported taxable income leads to an equivalent aggregate loss of $1*rate, but that is the assumption here.

[Patrick]

How much would they have to add to the sales tax to generate the same revenue?

I don't doubt the behavioural response, but I'm also wondering what behavioural responses people can undertake in the 150K-250K range? That's reasonably good money, but it ain't hockey player amounts of money. And it'll mostly be from wages, so impossible to hide from the tax man. My bet is that most people earning in this range have very inelastic labour supply. Certainly the people I have known in this range do; they basically work all the time and the decision to do so has nothing to do with their tax rate and everything to do with the type of people they are and the type of firm employing them. So working less seems improbable. Maybe they save more in tax sheltered investments like RRSPs? Or maybe they just sit-up and take notice and optimize where they hadn't before?

[rsj]

Patrick,

I think that's exactly right. You have loads of people lining on up to do menial work for menial pay, yet somehow the economic winners of our society, who tend to have more pleasant jobs, are supposed to start quitting en masse when their tax bracket goes up? It's much more likely that they have better accountants, and more options to hide some of their surplus income in various investments, which accounts for the observed greater elasticity. But income shuffled somewhere else is also taxed in aggregate, although possibly at a lower rate. And of course it is our choice as a society to allow for tax shelters and we can eliminate them if we want, which will bring that elasticity down to the point where it is statistically indistinguishable from zero.

[Kevin]

I work in Montreal with several people in the $130,000-$250,000 income range.
Quite a few have managed to dodge the Quebec taxman by setting up an official residence in another province, or in the US.
If the PQ goes ahead with this tax plan (difficult given their numbers in the Natl assembly) I suspect several more people will do this. It's not hard, and as they like to say, their Medicare cards will still work if they get sick at work.

[genauer]

A few comments from Germany

In order to pay for the much higher than anticipated costs of reunification, in the mid late 1990ties, a conservative government jacked up the total marginal tax rate to 53 % x (1+ 7.5% solidarity surcharge + 8 -9 % church tithe, for those who did not get fed up or make special deals, still the majority) = 57 – 61 %, from levels of 60 000 Euros on. The consequences were not overnight, but people began to change the form of their corporation, sometime 2 or 3 times, people did not receive “wages” anymore, but became “self-employed”, emigrated to Switzerland or the US, found ways to barter with other companies, …. And downright cheating or moonlighting increased, substantially. Countermeasures taken by the government, new ways to get around it.

It was then a left/green government which understood that there is no tax benefit anymore from this and had to reduce taxes to 42 % x (1+ 5.5% soli). We increased instead the VAT from 16 – 19% (non-food).

What happened afterwards the NGDP Scott Sumner called the “Second German Miracle” earlier this year. I called that somewhat excessive, but certainly a very positive development, most will agree on.

I think also the 50% threshold has a significant psychological meaning for many people, above which evasion becomes seen as morally justified.
And, in contrast to rsj, I think what we observed, was not that income is deferred or has to pop up later at some other taxable point, but that it takes a few years to get people mad and for them to organize then the way with the lower taxes.

When I look at the massive tax reductions during the Reagan years in the US, and the reactions in pay scales, S-corporations, my interpretation is, that it takes some 2-4 years for the first half of the adaption, and more like 6 - 10 years for the other half. But that is of course in the eye of the beholder.

There were earlier this year some papers on “Laffer curves” with income, capital, and consumption tax. http://www.nber.org/chapters/c12638.pdf

Looking at it not from a socialist viewpoint, but from the creditors, what might make it more credible : - )

[Robert Mianville]

I wonder how long this discussion will go on before anyone finds a way to blame this on Bill 101.

[Mark_dowling]

If there are mobile Quebec taxpayers then Ontario should be in the market for them, and not just the Anglos either. Start by partnering with VIA for additional capacity on the Montreal and Kingston corridors for say two departures every morning from Alexandria and Cornwall to arrive in MTL before 8.45am (as opposed to one and none at present), and give those municipalities the resources to expand both services in general and services to Francophones specifically. It's a province eat province world out there...

[genauer]

LOL, Robert,

As a non-Canadian, I had to look up what Bill 101 means. And, of course, http://en.wikipedia.org/wiki/Charter_of_the_French_Language was somewhat helpful,
but to adress your question, there would have to be tax data, number of filers, what income, etc. from that time.

But it is actually an interesting hint to how fast you can drive people out of a country, with measures below mass murder, like the pied noir early 60ties in Algeria (I am reading a detective story in that time, before people wonder about the connection :-). And counting people is easier, less ambiguous than tax/income data.

[Determinant]

Just to wind up Jacques, Quebec spends $300 million a year maintaining its separate tax collection agency. The other nine provinces use the Federal Government as their tax collector, which it does for free, or a pittance of extra charges.

Abolish Revenu Quebec and go to the system every other province uses. It's a free lunch!

5:3 says Jacques will call me a Centralist in his reply.

[Stephen Gordon]

Less than the absolute certainty with which I'm telling you to stop trolling.

[Jacques René Giguère]

We could also collect taxes at the provincial level, as we do for GST-TQS. Mere administrative arrangement with the symbolic value that makes for a workable polity.
And that answer is not counter-trolling...so Stephen can enjoy a well-deserved late-afternonn coffe after a long day at the front as I do after two sections of intro macro, one french and one english, in the best functioning little bilingual tricultural cegep in the country...

[Determinant]

Troll? Please, I prefer Wind-up Merchant!

*Sigh* With luck, Jacques, I shall invite you to Montreal for a lunchtime chat on "Why I am not an Angryphone". It's a story that involves the Federal government, not the provincial one, so it's safe. Funny, in parts inane, but politically safe (mostly).

[Robillard]

It is relatively difficult to dodge Canadian personal income tax if you are an employee of a company/government. I think it is likely that most of the people in the $130,000-250,000 tax bracket are likely employees, not business owners or rentiers living on passive income. It wouldn't surprise me if the majority of people in the $250,000+ bracket were also typically employees. I say that it is difficult to get your tax bill down if you are an employee because the Canadian personal tax system doesn't offer many deductions, which reduce your taxable income at the highest marginal bracket. The most significant deduction available to Canadians is typically the RRSP deduction, and that has strict limits. The Canadian system is littered with tax credits, but these generally only provide tax relief at the lowest marginal tax rate (the main exceptions are charitable donations, and certain types of investments like labour-sponsored investment funds). Tax credits may alter a taxpayer's behaviour, but they don't affect the marginal tax rate paid on one additional dollar of income.

Business (private corporation) owners generally have much more latitude to plan their way around taxes, since they generally have some control over the form of personal compensation (labour income, interest, dividends, capital gains). Business owners are also able to defer taxation by keeping it in the business, or through fancy tax planning involving estates.

I agree that the new tax brackets in Quebec will likely fail to bring in the full amount of expected revenue, but it will mainly be because businesses may choose to relocate, or business owners will distribute less income out to themselves. High-income workers may migrate, but that will likely mean giving up their job.

[genauer]

Does Quebec want to become an American Greece ?

[Bob Smith]

Patrick: "I don't doubt the behavioural response, but I'm also wondering what behavioural responses people can undertake in the 150K-250K range? That's reasonably good money, but it ain't hockey player amounts of money. And it'll mostly be from wages, so impossible to hide from the tax man."

That makes sense. At 150k, you're making good money, but you're probably still a wage slave. But, what's telling about Stephen's numbers, is how little money the PQ's proposal will actually raise from that group. At an elasticity of 0.2(which I suspect is probably realistic), it'll only bring in $66 million, and if the elasticity is 0.4 (which might be high, but is plausible) it'll probably bring-in less than the cost of enacting the new legislation. On any reasonable elasticity estimate, it's the over $250K people who count. And for the over $250k crowd, their likely to have both (a) more flexibility to change where they earn their income (without neccesarily leaving the jurisdiction - you set up an Alberta trust to hold your investment portfolio and your investment income gets taxed at 39%) and (b) the ability to hire best tax advisors money can buy.

"When Kennedy lowered top rates from 90% to 70%, tax revenues fell. Revenues declined every time rates were decreased and revenues increased every time rates went up".

What's the source for that? My recollection is that the consensus view was the revenue from top-income earners went-up after the Kennedy tax cuts. Ditto for the Reagan cuts (although I recall there is some dispute on that point), at least from high income earners (for people lower down the income spectrum, as you might expect, they were money loses - tax cuts for the middle-class are brutally expensive). Mind you, with the PQ we're not talking a 91% or 70% tax rate.

Determinant: "High-income French-speakers have to give up French in the workplace and most of their social lives in French when they move to an English-speaking province".

Except many (most?) high-income french-speakers are likely to be reasonably fluent in English (and, of course, some of the high-income earners are "les maudites Anglais"). Moreover, the exception you noted - the Ottawa area - isn't a small one. I wonder if there are any deputy minister living in Gatineau pondering the merits of Westboro? In any event, as I noted above, it's possible to reduce your personal income tax burden without leaving the jurisdiction, if you're so inclined.

Mind you, I suspect if people start fleeing Quebec, it won't be because of the tax rates (except maybe for the real high income earners), it'll be the PQs many hare-brained proposals (including the expansion of Quebec's language laws to small businesses). Businesses (both Quebec based and foreign looking to invest) are going to start elsewhere to invest (see, for example, this piece in the weekend's Gazette: http://www.montrealgazette.com/business/technocite/Quebec+tech+sector+worried+about+expanding+Bill/7316641/story.html). At least you'd think the PQ wouldn't want to give people an added incentive to leave.

[Bob Smith]

"High-income workers may migrate, but that will likely mean giving up their job."

In some cases, maybe, although the reality is proximity is less important than it once was - I regularly work with people in my firm's montreal office who I meet once or twice a year, if that. Similarly, I have colleagues who have, for personal (rather than tax) reasons, transhipped from our Toronto office to offices in other provinces - but who still work with the same lawyers and on the same client files. And remember, high income earners are high-income earners for a reason - they often have skill sets that are not so easily replaced. They're precisely the sort of people that employers are going to try to accomodate if they can.

Moreover, maybe instead of being employees, they set themselves up as independent contractors (harder to do if they, in substance, are employees, but not neccesarily impossible if they actuall conduct themselves like independent contractors).

[Determinant]

Bob:

My point was migrating francophone Quebeckers face personal penalties that English speakers don't.

[Bob Smith]

"My point was migrating francophone Quebeckers face personal penalties that English speakers don't."

Do they? French may be the required working language in Quebec, but I suspect your average Montreal investment banker or corporate lawyer spents a fair bit more time speaking in English than in French (remember that story last year about the National Bank hiring a VP who was a unilingual anglophone, what language do you think his colleagues work in? Bill 101 doesn't apply to federally-regualted institutions, until the PQ and NDP get their way). Want your kids to grow-up in a francophone environment, come to Toronto, send your kids to a french school! I suspect that in practice, the penalties are not as great as you suggest.

[Tim]

I know Bombardier for example has a corporate shuttle aircraft that runs between Downsview(Tor) and Mirabel(Mon) that flies several time per day. I don't know if any employees take it on a daily basis but it is used regularily to transport people between each site.

Determinant's idea about closing down Revenu Quebec is a good one. Perhaps Ontario and Quebec could also look at merging OPP and SQ into the RCMP. From what I understand this might not save money under the RCMP's current cost structure but perhaps it is worth discussions with Federal Government. It would not shock me in the least of McGuinty was having this conversation behind the scenes with the Feds. McGuinty has already had the nerve to shutdown Ontario Northland(something neither Harris or Eves did) which was the old Orangeman boondoggle to increase Anglo migration to Northern Ontario and limit Francophone migration.

[Bob Smith]

"Determinant's idea about closing down Revenu Quebec is a good one."

Sure, and it would be a good idea for Quebec to adopt the HST rather than to harmonize the QST with it (and keep it as a separate tax), but Quebec will never do it (certainly a PQ government will never do it).

[Tim]

Quebec could consider just shifting the corporate income tax function of Revenue Quebec to Ottawa as Ontario did several years ago prior to the HST(I believe Alberta could do this too). I know this has been discussed with some level of seriousness over the years. CIT collection basically occurs completely out of sight to the average voter anyways.

[Robert Mainville]

It's close, very close. Language and Bill 101 have been mentioned by Bob Smith, not blaming those per se, but nearly.

Come on guys, I placed a bet on this! Please, live up to the ROC's reputation and blame everything on Bill 101. You're so close.

[Patrick]

Robert: Dude, that's so 90s. Get in the Tardis and join us in 2012 where ROC includes QC and we blame everything on tar sands.

[Simon Coulombe]

Between 2004 and 2012 the following provinces had the following changes to their top total (fed+prov) income marginal tax rate according to taxtips.ca:

NB down from 46.84% to 43.30%
NL down from 48.64% to 42.30%
NS up from 48.25% to 50.00%
ON up, new bracket at income above 500k$ 47.97%, from 46.41%
NWT up from 42.55% to 43.05%

Is there any recent study that worked on the taxable income elasticity in these provinces? The dept of Finance one only has date until 2006.
I'd rather look at something Quebec specific, as there is much less interprovincial migration from francophones.

Cheers

[Jacques René Giguère]

Bob Smith: Mama, don't let your son grow up to be a Gazette reader. The number of times I wrote to correct factual mistakes (not opinion, I never argue with the Gazette) with the answer being that Nobel winner is wrong and the municipal affair columnist is right..a penny an email...
Even when they take the tardis, they blame Francos for the tar sands...

The reason deputy minister don't live in Gatineau have not much to do with the tax rates...

You can send your children to excellent French schools in TO. (OK they may try to get that funny accent and vocabulary out of them so they can speak "proper french") but the problem is that you can't live in French in TO the way you can live in english in MTL. No movies or theater, essentially no cultural life and of course no job (outside schools) where you can work in french except some customer service phone bank. Though I had an excellent experience last week with such representative last week, that person obviously from West indian origin is answering phone at the minimum wage, not chairing the TSE.

The National Bank and SNC-Lavalin are no longer french-speaking businesses where a QC technical class can work in french. The top is not only working in english but recruiting unlingual anglos because-we-are-world-class. With all his good will ( which I don't doubt) how long will it takes for Mr. Card to master engineering and financial french so he can work at his pay grade? Given the problems the company faces, will it be a real priority? Should it? (And I hope he doesn't go the Montréal-joie-de-vivre-New-Orleans-of-the-north route...).

Back to elasticity of tax rate? Bueller?

[SimonC]

(commenting my comment) The interest of the 2004-2012 period as opposed to the 1996-2006 is that it also has upward movement of the top tax rates, not only going down as in 96-06.

[Determinant]

*sigh*

I never mentioned The Bill That Must Not Be Named.

What I did observe was the same as what Jacques wrote:

You can send your children to excellent French schools in TO. (OK they may try to get that funny accent and vocabulary out of them so they can speak "proper french") but the problem is that you can't live in French in TO the way you can live in english in MTL. No movies or theater, essentially no cultural life and of course no job (outside schools) where you can work in french except some customer service phone bank. Though I had an excellent experience last week with such representative last week, that person obviously from West indian origin is answering phone at the minimum wage, not chairing the TSE.

That is the penalty I was referring to. That's just the reality on the street, laws or no laws. If you like to have a casual conversation in French with your colleagues or secretary in Toronto as a francophone high-flying professional, you'll be out of luck.

Conversely, I have applied for a job in Montreal, which is in the middle of the process. I would speak French at work frequently, that's just the kind of office I would be going to. I have looked at moving to Notre-Dame-de-Grace/Cote de Neiges, just off Westmount. The reason that area attracts me is that it is a health district with an English-service mandate, I'm diabetic and I can't do my health in French (yet). I will gladly make any amount of French mistakes at the grocery store, restaurant and put my foot in my mouth howwever many times it takes to get my French right in any other situation, but my French just isn't good enough to take care of my health.

Similarly, that's where the English churches and community organizations are. There's also a good Metro connection to my prospective workplace.

My case is the mirror of a Francophone moving to Ontario, except the Francophone would have to move to Ottawa to get the same services in French in Ontario that I would get in Montreal in English (particularly the non-governmental services which require a French community to support them).

You can send your children to excellent French schools in TO. (OK they may try to get that funny accent and vocabulary out of them so they can speak "proper french")

As an funny tangent, I once worked for a France-French company for a summer that had a plant in my hometown. We had some French staff there and I asked them what happened to the English-Canadian staff who went there. French teachers in English Canada are either Quebecois themselves or have studied seriously in Quebec. The more French you take in English Canada, the more Quebec influence you get.

The English staff always elicited stares and giggles for causally and innocently using Quebec terms, constructions and slang when speaking French. The French staff couldn't really get over it.

[Patrick]

"English staff always elicited stares and giggles for causally and innocently using Quebec terms"

Wild guess: the French employees where from Paris?

[Jacques René Giguère]

Determinant: interesting observation. More than 40 years ago, Trudeau refused to see a Michel Tremblay play because it was in "une langue de pouilleux" ("hobo's language"). Today, a PM could refuse seeing a play by a world-renowned writer because his agenda is full or he doesn't like theatre, the subject or the playwright. He couldn't ( and probably wouldn't) try the "it's not real french " argument.

[Determinant]

Patrick:

Sorry, wasn't clear. The English employees were at a French plant in France, on exchange. It was in the Paris region.

Jacques: All the French teachers I have had in school were either Qubecois or had studied seriously in Quebec to get their teaching fluency level; they had Radio-Canada TV programmes ready for lesson illustration or Quebec folk songs close at hand. An English learner of French in Canada will almost certainly (with rare exceptions, my example was one) use their French, if at all, in speaking to Quebeckers or French-speakers in other provinces. They know that the more advanced the lessons, the more Quebec French they have to use because that is what it takes to make their students practical French speakers.

I once worked at a call-centre that provided the French toll-free support line for a well-known product manufacturer. That centre was in English Canada, to be sure, my home town in fact, but recruited French Immersion grads to staff the line. It worked well, if French-Canadian customer responses were to be believed.

[Determinant]

On the mobility of Francophone Quebeckers, La Presse has this article saying that Lancaster, Ontario is doing a roaring real estate trade in Quebeckers who want to migrate to Ontario for tax reasons.

http://affaires.lapresse.ca/economie/immobilier/201210/02/01-4579395-lancaster-ontario-frenesie-immobiliere-made-in-quebec.php?utm_categorieinterne=trafficdrivers&utm_contenuinterne=cyberpresse_B25_A-decouvrir_219_article_ECRAN1POS2

Lancaster is 45 minutes outside of Montreal and one of the few Ontario towns within commuting distance of Montreal. People keep their jobs in Montreal and live in Ontario. In Canada, including Quebec's provincial income tax act, you pay income tax based on where you live on Dec. 31st of the year you are filing for.

[Tom]

> Please, live up to the ROC's reputation and blame everything on Bill 101. You're so close.

Well, I live in the ROC, and I *do* blame the fact that Canada is still in one piece on Bill 101.

As a strong Federalist, I think Bill 101 was and is an absolute necessity.

[Determinant]

Re the Tar Sands, the Tardis and the Bill That Must Not Be Named.

Alberta and BC over the Northern Gateway reminds me of Quebec and Newfoundland over Churchill Falls.

Though the odds are better this time that Harper will perform the BNA Act in public (ewww) and use the Declaratory Power to push the pipeline through.

[Jacques René Giguère]

There are good political reasons why Declaratory Powers have not been used in living memory. If Harper does it (and brutal as he is, he is too wily to do it), the PC are dead outside AB and maybe SK for any conceivable future.
Nobody sees Gateway as vital to Canada. It is vital to oil companies and their AB branch managers ( sorry politicians, my bad). Not for Canada.
If Gateway was going from AB to ON through MB,saving TO from an OPEC embargo, maybe you could weigh the gains versus losses. Gateway has one winner and the rest of us ( environmental damages, Dutch disesa )as losers. No way it can fly.

[Determinant]

The Declaratory Power was last used to place uranium mining and processing in the Federal jurisdiction, due to national security concerns, in 1962.

It's an interprovincial work anyway so BC has precious little ability to stop it.

Ontario wouldn't mind a Declaratory Power, we bore the brunt of the last use with Elliot Lake and Cameco being confined solely to Federal jurisdiction.

BC asking for royalties for pipeline use (nobody else imposes them) is an asking-for-a-Declaratory Power wind-up.

[Election Watcher]

- The tax base for epsilon=0.7 in the table for the 31% bracket should be $14.252 billion, not $14.523 billion.

- Revenue losses from the base reduction are somewhat overestimated because people might fall into lower brackets. If someone's income drops below $250,000, then the revenue loss is partly from the 28% bracket, and partly from the 31% bracket. So while Stephen is right that the revenue gain in the 28% bracket from those starting with more than $250,000 is overestimated, the gain in the 31% bracket for those same people is underestimated, and the latter necessarily wins out. (The same holds around the 24%/28% threshold.)

- On the other hand, there will be revenue losses from this for the federal government as well, and Quebecers will pay about 20% of that bill one way or another.

[Bob Smith]

"No way it can fly."

Well, it won't happen, but not for those reasons. No matter who wins the election next month, they'll sign-off on the Keystone pipeline (sorry Greens, Obama'll do it too) and we'll end up selling our (well, Alberta's) oil in the US market rather than to China. The gateway project has always had the feel of a negotiating ploy, rather than a practical proposal.

[Determinant]

Closing off the French-language tangent:

Ontario (and the other English provinces) put Canadian history in their curriculum, and French is there as the language subject as it is Canada's other language. That's why Grade 4 student's don't learn Spanish.

School French lessons in English Canada don't belittle Quebec French, they teach it. If there is a difference between Quebec and France-French usage, it will be there in a note at the bottom of the textbook page (see "le shopping"/magasiner). The "prize" for French studies in High School in Ontario is generally a trip to Quebec; in Newfoundland it's a trip to St.-Pierre et Miquelon.

Dumping on Quebec's dialect went out with the 1960's. It's rude, unproductive and inappropriate in a Canadian context. That's why French lessons in English Canada don't do it.

[Tim]

On the subject of pipelines I do think there is going to be increasing talk and perhaps serious proposals of converting part of the east west Trans Canada Mainline gas pipeline into carrying crude oil. My guess is the destinations would probably be Montreal, Quebec City, and the Maritimes not Sarnia. I also think if nothing serious happens on this front before the next election either the NDP or the Liberals or both will make election proposals calling for some type of government intervention in this regard. This given the amount of political capital the Conservatives have spent on Northern Gateway will make it difficult for the Conservatives to reject such intervention. Pure "free market" types won't like this(I suspect they will all be hoping for a Romney victory so Alberta can back to business as usual of selling all of its oil to the US) but pure "free market" types were probably opposed to Confederation to begin with.

[Bob Smith]

"I suspect they will all be hoping for a Romney victory so Alberta can back to business as usual of selling all of its oil to the US"

I hope you're not under the illusion that Obama's policy re: Keystone will be any different from Romney's. He deferred making the decision for a year in order to avoid pissing off a core consitutency in an election year. The minute he wins the election (assuming he doesn't somehow blow it) he'll greenlight Keystone.

"This given the amount of political capital the Conservatives have spent on Northern Gateway will make it difficult for the Conservatives to reject such intervention."

Such as? Since nothing has happened with it, it's hard to say they've burned any political capital.

In any event, the day the NDP runs an election on a proposal of using government money to build an oil pipeline through Northern Ontario. Well, I'll see it when I believe it.

[Tim]

The Federal Conservatives crossed a rubicon that perhaps though that shouldn't have(and the old Reform and Alliance Parties would not have). There is a case to be made that the oil and gas are natural resources owned by the provinces and thus it is up to provinces solely to decide how such resources are marketed and transported. However, in response to the Keystone rejection Harper had to get on his high horse and make the whole thing a question of national honor notwithstanding the relative short term delay of the decision and went on and on about the "national" importance of the oil sands and crictized "foreign" read US environmental groups for interferring in Canadian internal affairs. You also have Allison Redford out there talking about her yet undefined National Energy "Strategy" and still holding meetings with BC's Christy Clark about Northern Gateway. Even Danielle Smith of the Wildrose Party had to come out in favor of an East West Pipeline.

I am curious what Determinant has to say about all of this as in the past he has been a big fan of an East West Pipeline. I will also add that the US in the future is not perhaps not quite as desirable a market for Alberta oil as previously thought. I will comment on this later.

[Determinant]

I am in favour of either an expanded Trans-Mountain pipeline or a Northern Gateway. If the Northern Gateway is just a filler for the Keystone Pipeline, then it will drop off the radar in a few months.

I am very much in favour of a pipeline through Northern Ontario, we have an all-Canadian route for Natural Gas but not for oil. We have with pipelines the case we refused in the CPR Scandal of 1873, that is running key trans-Canada infrastructure through the US, namely Chicago.

I wan a single, integrated market for Canadian oil in Canada, based on market prices. Having Ontario's oil come through the US is not in our national interests.

[Joe Smith]

"I work in Montreal with several people in the $130,000-$250,000 income range.
Quite a few have managed to dodge the Quebec taxman by setting up an official residence in another province, or in the US."

When BC's top marginal rate was a lot higher than Alberta's there was a move of high income earners to establish an entirely artificial residency in Alberta for tax purposes.